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This chapter introduces the concept of structured products, their benefits, and reasons for their revival after the year 2008 credit crisis. Individual as well as institutional investors have recognized the benefits structured products generate with their specific risk‐return profile that cannot be replicated by the usual investment vehicles such as equities or bonds. Structured products, which have...
This chapter explains different aspects of structured products. Institutional investors around the world buy, hold and trade structured products. Private investors usually have simpler needs and targets. Their reasons for holding structured products are the prospect of gaining more than a riskless interest rate would otherwise yield, optimizing returns, or participating in the performance of an underlying...
This chapter describes different categories of structured products that include: capital guarantee, yield enhancement, participation, and leverage. The categories are differentiated by their risk‐return profile, comparing the generic risks of structured products with familiar asset classes. One of the biggest problems with the traditional capital‐protected products is that they have relatively long...
This chapter discusses behavior of structured products in a stock market. The variation of some key factors, like the passing of time, the implied volatility, the risk‐free interest rate or, in turbulent times, the issuers’ funding rate can strongly influence a product's price. A first step toward understanding these effects is to go through an explanation of some of the most important valuation and...
This chapter explores different features of structured products. A quanto option is a type of derivative in which the underlying asset is denominated in one currency, but the instrument itself is settled in another currency at a predefined fixed rate. Hence, an investor can have exposure to a foreign asset, but without the corresponding exchange rate risk. Barrier options are present in barrier reverse...
This chapter examines the functionality options of different structured products. The funding rate is essential in structured products, because it influences the yield of the bond component within a product. In a sense, the funding rate reflects the credit risk of the issuer, which in turn the investor perceives as the counterparty risk. Similar to fiduciary deposits, the investor bears the risk of...
This chapter defines foreign exchange, fixed income and commodity products, and their roles in the structured products’ lifetime. Structured products, which base a strategy on the probable future evolution of foreign exchange rates between currencies, can be placed at the same level as products on equities, fixed income and commodities. Foreign exchange market makes it attractive for investments in...
This chapter discusses different developments taken place in recent time in the market structured products market. The actively managed certificate (AMC) is the most flexible investment form of all certificates and, indeed, of all structured products. The initial underlying assets can be exchanged for others on a discretionary basis. This is the major difference between this and the rule‐based certificate...
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